A funds manager manages a diversified Australian share portfolio, but is concern

Question

A funds manager manages a diversified Australian share portfolio, but is concerned that stock prices in the market will fall over the next three months. The manager decides to hedge the risk by selling 100 S&P/ASX All Ordinaries Share Price Index futures contracts at 23.55. Three months later, when the manager closes out the position, the contract is trading at 24.10. Calculate the profit or loss position of the futures transactions.

A.

$5500 loss

B.

$24 100 profit

C.

$137 500 loss

D.

$550 000 profit

A funds manager manages a diversified Australian share portfolio, but is concerned that stock prices in the market will fall over the next three months. The manager decides to hedge the risk by selling 100 S&P/ASX All Ordinaries Share Price Index futures contracts at 23.55. Three months later, when the manager closes out the position, the contract is trading at 24.10. Calculate the profit or loss position of the futures transactions.

A.

$5500 loss

B.

$24 100 profit

C.

$137 500 loss

D.

$550 000 profit

Explanation / Answer

There is Loss on futures transaction as the futures contract was sold at 2355 and the contracts closing position was 2410.

Loss = (2410-2355)×100

=55×100

=5500 i.e option A

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